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Atty. General Brown Forces Settlement with Citibank: Investigation Reveals Bank Was Stealing From Its Customers

Tuesday, August 26, 2008

Contact: (415) 703-5837, agpressoffice@doj.ca.gov

SAN FRANCISCO- California Attorney General Edmund G. Brown Jr. today announced that he has reached a settlement with Citibank after a three-year investigation into the company’s use of an illegal “account sweeping” program. Nationally, the company took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit-card customer accounts into Citibank’s general fund.

“The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps,” Attorney General Brown said. “When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.”

Between 1992 and 2003, Citibank employed a computerized “credit sweep” process to automatically remove positive or credit balances from credit-card customer accounts. An account could show a credit balance if a customer double-paid a bill or returned a purchase for credit. The credit sweeps were done without notifying the customer and without regard for whether the customer had any unpaid balances or other charges owed to Citibank.

The credit sweeps targeted more than 53,000 customers nationwide. All of the affected accounts were in a recovery status, which includes accounts of customers who have died, sought bankruptcy protection, or been the target of litigation or other collection efforts by Citibank.

In July of 2001, a Citibank employee uncovered the practice and brought it to the attention of his superiors. The employee was later fired for discussing the credit sweeps with an internal audit team. In the words of a Citibank executive, “Stealing from our customers is a business decision, not a legal decision.” The same executive later said that the sweep program could not be stopped because it would reduce the executive bonus pool.

The Attorney General launched its investigation of Citibank in 2005 to determine whether the company violated the California False Claims Act by filing false holder reports with the California State Controller that omitted any reference to the swept funds. The 3-year investigation led to today’s settlement.

The settlement includes:
• Permanent injunction – Citibank will be permanently prevented from re-initiating the credit sweeps.
• Refunds to victims – Citibank will refund all improperly swept funds to customers who were victimized by the sweeps. Citibank will also pay California customers 10% interest on the amount taken.
• Penalties – Citibank will pay $3.5 million in damages and civil penalties to the State of California.
• Compliance audit – After Citibank’s refund process is complete, an independent auditor will review Citibank’s work to ensure that it has lived up to its obligations.

Citibank has affirmed that it can identify most of the victims of the credit sweeps and has begun the process of reviewing archived account data and refunding the improperly swept funds going back to 1992.